Examination of Witnesses (Questions 440
- 458)
THURSDAY 23 JULY 1998
MR PETER
HAIN, MP, MR
DEREK JONES
AND MR
MICHAEL COCHLIN
440. I am glad to hear that you are addressing
that. Finally, you referred earlier to local government. The WLGA
has told us that it was unable to get hold of a comprehensive
list of all the different schemes and programmes currently offered.
Is that an acceptable state of affairs given that organisations
like Business Connect are supposed to be drawing all these things
together?
(Mr Hain) I was curious about that comment because
there is the Business Connect Wales directory that lists all the
different schemes. I am not sure whether the person who made that
comment was aware of it or whether there is some information not
contained in that directory that should be provided. But I believe
that it is fairly comprehensively available.
(Mr Jones) I had not heard that complaint before this
morning, but the WLGA can certainly contact my department.
441. It sounds as if Business Connect needs
a better lobbying firm. Perhaps Mr Draper would be interested
in business in Wales.
(Mr Hain) We are not into cronyism in Wales. We are
engaged in increasing the profile. I have resisted the idea that
Business Connect should just be closed down in favour of some
monolithic organisation at the centre. I think that the 60,000
SMEs in Wales need a particular focus. They are not strong enough
and do not get the support that they deserve.
Mr Livsey
442. We have a specific section on Business
Connect which in part has been pre-empted by previous questions.
To summarise the position, basically there has been a variation
in the way that Business Connect has been delivered in different
parts of Wales. My experience of it in rural Wales is that it
works exceptionally well. There is a supplementary memorandum
in which you say that the Business Connect consortia will be geographically
rationalised. Is it not a case of promoting best practice which
may be slightly different between urban and rural areas? The staffing
situation is at times variable. It seems to me that the use of
outside consultants on occasions is an area that requires to be
sorted out. Presumably, a lot of these things are under consideration
at the moment. How far have you got in promoting best practice
in Business Connect?
(Mr Hain) I am aware that the reputation of Business
Connect in Mid-Wales is very high, perhaps because of its association
with the DBRW. The lessons from that need to be learnt. That
was why I said earlier that I thought the experience of Business
Connect was uneven across Wales and there was a need to learn
from best practice. But in terms of regional reorganisation we
are anxious to see effective rationalisation. Some of that is
already happening. I do not think that it should be done according
to any pre-figured agenda. It does not follow that the local
Business Connect services should be done at one regional level;
they should be in contact with their local businesses.
Mr Thomas
443. How convinced are you about the value of
TECs?
(Mr Hain) TECs are a regime that we inherited. I looked
at the whole question of TECs when we first came into office.
Their performance has been variable, but they have tended to deliver
quite effective training and enterprise programmes in certain
areas. For example, Gwent TEC has been quite successful and providing
high quality training. But we are always reviewing their structures.
TheEducation and Training Action Group which I chair is looking
at the delivery of education and training which I believe suffers
from considerable incoherence and often duplication to make sure
that the relationship between TECs and further education colleges
and other local authority training providers deliver the most
effective training on the ground. I am not convinced that that
happens particularly in the 16 to 19 age group which is vital
to the Welsh economy so that it upgrades its skills. We are looking
at the role of TECs. But we have already indulged in considerable
restructuring by creating regional symmetry between the TECs and
the new WDA agency and regional committees as proposed for the
national assembly so that all of them are consistent and they,
too, marry with the regional economic forums and result in coherence.
Finally, we have ensured that there is to be local authority representation
on the TECs. There has been a division there that has not been
helpful.
444. Do you believe that the enterprise functions
of the TECs are being effectively exercised?
(Mr Hain) I should be interested to receive evidence
that it was not. In lots of cases I think that it is effectively
delivered. The advantage of TECs is that they bring in frontline
voluntary business experience. Over 70 per cent of TEC board members
are from SMEs. That frontline experience is very valuable. But
given that we were in the process of massive institutional change
and reorganisation from the national assembly down to the WDA
we did not think that it was appropriate to take on board the
wholesale question of whether or not the TECs should continue.
By and large they are doing a good job and I want to see them
doing an even better job within a more focused and coherent training
and education strategy.
Mr Livsey
445. There is no truth in the rumour that you
are to abolish the TECs?
(Mr Hain) I have not said that I will abolish them.
446. You have not said it?
(Mr Hain) There is no truth in that rumour, if it
is one.
Mr Edwards
447. The Committee recently made a very interesting
visit to Scotland. One of the aspects of business development
that we saw was LECs—local enterprise companies. We visited
one in Ross and Cromarty which had a budget of £7 or £8
million and a population of 50,000. It had a dual role of business
development, training and community development. I was very impressed
by what it did. Mindful of what you said about structural organisation,
is it worth looking at the local enterprise companies in Scotland
and seeing how they may work in Wales, particularly in rural Wales?
(Mr Hain) I would be interested to hear from the Select
Committee of any experience in Scotland which was thought to be
helpful. But Wales is different; it has developed in a different
way. I have not been persuaded that the Scottish model is more
effective. If one has conclusive evidence and a recommendation
suggesting that it is, as your question implies, I shall be interested
in it. But notwithstanding my instinctive barrier to further institutional
change at this stage if it works better, let us look at it.
448. I do not know whether there is anything
that has impressed you in Scotland. Perhaps you would like to
conduct a version of the fact-finding visit that the committee
undertook.
(Mr Hain) The Irish experience, in which I am very
interested, and the Scottish experience may be a fruitful examination.
I have my work cut out visiting all of Wales in its great diversity,
let alone going to Scotland. But I certainly do not turn my back
on that idea.
Chairman
449. Small businesses, especially start-ups,
find it hard to get finance. Do you think that there is a role
for the public sector in filling that gap?
(Mr Hain) I think that it has a role. We are discussing
with the WDA exactly how we can focus more small loan finance
on that sector. Before becoming a Minister it was my experience
as a constituency MP that small businesses often lacked access
to long-term low-cost finance. The financial system in Britain,
more so than in Germany or France, is driven by relatively high
rates of return over relatively short periods. That is often what
is not appropriate for business development and start-ups. We
are exploring that with the WDA and want to ensure that it is
best focused.
450. The evidence that the committee has heard,
is that there is a gap in the market to engender small and medium
size start-ups. We keep referring to Ireland as if it has got
everything right. Perhaps that is because of the blarney to which
we have been subjected. The Irish have an equity finance programme;
they are allowed to take equity stakes in companies which I understand
the WDA used to be able to do. Is the WDA looking at taking equity
stakes in businesses again? It seems to be a good idea. If the
company is a success the public sector gets the money back with
interest. It seems a good way to go about it rather than using
grants, if they are available.
(Mr Hain) I am very interested in it and as a matter
of policy favour it in principle. We want to do it very carefully.
You referred to the difficulties that the WDA got into some years
ago. I think that I am right in saying that it landed various
Welsh Office officials before a PAC. I certainly do not want to
go down that road. We have to approach this very carefully. My
understanding is that, for example, in Germany the equity stakes
taken by the financial institutions and the regional development
agencies are enormously beneficial. If the Irish experience supports
that, as you appear to suggest, it is something that we want to
look at very closely. Wales may well benefit from it.
(Mr Cochlin) Equity, grants and loans are all under
active discussion with the agency. In terms of equity, it has
a very chequered history not so much about the principle of making
equity available but the way it was managed in the past which
led to difficulties and effectively the suspension of that facility.
As to grants and loans, both the WDA and DBRW operated grant and
loan schemes for small businesses. These were quite welcome and
effective at the time. There were equally facilities available
in the South Wales valleys. In the mid-1990s it was discovered
that the vires under the WDA statute on which these were
based was unsafe. On the basis of legal advice, Ministers decided
that it was no longer safe to proceed given the existing statutory
position and these schemes would have to be withdrawn. They were
withdrawn by the WDA and, as a consequence, by the DBRW. We are
correcting the statute in the Government of Wales Bill and it
is on the back of the freedom that the agency will have to revisit
these area that these discussions are taking place. As the Minister
says, we are interested in all three sectors: equity, loan and
grant. We want to be careful as to how they are structured and
we also want to look at private sector participation.
(Mr Hain) We do not want to displace private sector
investments. There is however considerable scope for partnership
in all this. I am also anxious to interest venture capital institutions
in London that have a more traditional city focus than, because
in my view there has been insufficient interest in Wales on the
part of those institutions; nor has there been sufficiently energetic
courting of them by various people with influence in Wales.
Chairman: One of the interesting aspects of
an equity stake taken by the WDA or the IDA in Ireland is that
there is ongoing monitoring, unlike a grant which may or may not
be lost.
Mr Caton
451. During this and an earlier inquiry into
economic development we have become aware of the widespread view
that export promotion is not as effective in Wales as it should
it. In particular, it has been suggested that too much emphasis
is placed on trade missions. Do you accept that?
(Mr Hain) I accept it in as much as export promotion
has not been as effective as it should be. That is why we have
said on page 21 of Pathway to Prosperity that we are reorganising
our whole export services and looking to ensure that they are
coherent. As to trade missions, I am not sure that I accept that.
The figures that I have suggest that since 1993 trade missions
have cost the Welsh Office £650,000 by way of subsidising
businesses to go on these missions with Ministers and officials.
As a result of that public investment, firm orders have been received
to the value of £29 million with promised prospective orders
of an additional £37.5 million. That seems to be a pretty
good ratio of taxpayer's money for investment benefit. Perhaps
anticipating one argument for the export services being taken
over by the WDA, there is a need to rationalise that. We are looking
at it. If you wish I can expand on that.
452. Several of the witnesses including the
WDA have suggested that export promotion should be the responsibility
of the WDA. Could you expand on your reasons for not going down
that route? But it sounds as if you can see some possibility of,
say, shared resources. One thinks of the WDA offices across the
world.
(Mr Hain) There is considerable scope for the rationalisation
and sharing of resources. When I became a Minister I was struck
by the fact that the Wales European centre in Brussels did not
have a Welsh Office presence there. We are now making good that
deficiency. I am sure that the national assembly will want a permanent
representative there. That was funded partly by the local authorities
and partly by the WDA. We want to look at all of this. There is
a tendency—I understand the WDA wanting to pursue this—to
have the WDA do everything, whether it is in terms of Business
Connect at the micro end or export at the international end. While
I am sure you are right that there is a need for greater rationalisation,
I point out that the Welsh Office operates within the Government's
overseas trade services. That has been highly beneficial because
it gives us direct access to embassies and consulates. DTI and
FCO provide a framework within which we can win a lot of orders
for Wales. We do not want to find ourselves falling outside that
framework. It is perhaps worth adding that there are other areas
of overseas earnings including education, health and cultural
exports where we need partnership with local authorities, the
British Council in Wales, universities and medical schools. I
do not know that the WDA could take on all of that, or that it
should.
453. For example, in Catalonia the equivalent
of the WDA seems to have the dual function of inward investment
and export promotion. It has a successful, thriving economy and
that arrangement seems to work well for that part of the world.
(Mr Hain) I am very happy to learn from Catalonia
which has been much more successful than Wales economically. It
has also benefited from having its own form of regional government—a
deficiency in Wales which the Government are currently dealing
with. We need to look clearly at exactly how the WDA equivalent
meshes in with the export services which in turn fit into the
wider UK Government framework. If there are lessons to be learnt
and you can point us in the right direction we will be very happy
to look at that matter.
454. Another model that seems to work is Scottish
Trade International in which one has the Scottish Office and Scottish
Enterprise working together on export promotion. Is that something
which you would be willing to look at in order to secure better
use of resources?
(Mr Hain) When I said that I was opposed to structural
change for its own sake I did not intend it to be as extreme a
statement as that. I am simply saying that we are in the middle
of a pretty major structural and institutional change. We must
ensure that we continue to deliver services in Wales because change
diverts people's energy and time and has an effect on morale.
I do not want us to be continually indulging in a kind of Maoist
cultural revolution of continual structural change. The Scottish
example is interesting. As part of our reorganisation of export
services we are looking at that as well.
Dr Lewis
455. You said at the Royal Welsh Show that Welsh
food promotion would come within the remit to some extent of the
new WDA. I understand that there will be a new rural unit at the
WDA. Do you want to expand on your remarks and the role of that
new unit in relation to agriculture as well?
(Mr Hain) As to the WDA taking over the functions
of the Wales food promotion body, that was announced by the Secretary
of State on Monday. It reflected our desire to make sure that
we focused most effectively upon a value added sector springing
from the vital agricultural sector in Wales to which the WDA could
give priority and bring to bear all its expertise, experience
and resources to drive it forward. We do not think that that has
been done as effectively as it should have been in the past. The
injection of food promotion into the WDA's vires will be
very beneficial, as will the DBRW's expertise in terms of making
sure that we have a rural policy which perhaps in the past, with
the possible exception of the DBRW region, has been far too much
focused on agriculture and not sufficiently on strengthening the
wider rural economy around us. While not wishing to detract from
the vital importance of giving all the agricultural support we
can give, especially with the very difficult if not impossible
time that agriculture has had over the past couple of years, nevertheless
we want the rural economy to be diverse and strengthened alongside
it.
456. Do you see the new WDA taking on a more
active role in relation to agriculture?
(Mr Hain) It depends on what you mean by that. Do
you mean that the entire agricultural department of the Welsh
Office should be transferred to the WDA along with everything
else that is suggested? The answer is no. But the rural unit will
give the WDA a priority focus on the rural economy. That will
be very beneficial, not least in bringing the kind of support
that the DBRW has provided to other rural parts of Wales.
Mr Livsey
457. In the press there has been a certain amount
of criticism in regard to tourism in Wales. Some pretty strong
words have been used about whether the Wales Tourist Board is
an efficient or effective organisation or whether it should go
the way of everything else and become part of the WDA. Looking
at it as an organisation by itself, are you satisfied with the
performance of the Wales Tourist Board given that tourism is a
key industry?
(Mr Hain) Before answering that specifically, the
Wales tourism industry—I am aware of the anxiety that is
expressed by operators right across Wales who are in great difficulty—has
suffered from incredibly bad weather and a high pound, alongside
English tourism—Wales is not alone in this—and therefore
the difficulties that we have had over the past few months when
the sector should be booming have reflected that. Obviously, I
want to make sure that the Wales Tourist Board operates effectively.
There have been criticisms of it, many unfounded. But we are in
regular discussion about it. I have talked to the board's chairman
Tony Lewis who is aware of it. We are determined to make sure
that any legitimate complaints and concerns are addressed and
that the board drives forward a very successful strategy in future.
What was so galling about the dreadful June—the worst on
record in Wales—was that it came on the back of a very exciting
marketing campaign entitled "Wales—Two hours and a
million miles away". That has had a huge impact, the results
of which we will see in years to come in England as the principal
target area. That success 7coupled with the tourism conference
in Llandudno and other initiatives should be set against the complaints
that have b7een made, some of which are not fairly to be laid
at the tourist board's door although there are clearly problems
of communication that need to be addressed.
458. In my area private tourism has committed
UDI to some extent. It is a very hot topic indeed. Do you think
that two aspects can be improved in relation to tourism? First,
does the structure of the WTB have sufficient professional experience
of tourism? Is it sufficiently democratic in the way it represents
all tourism interests in Wales? Secondly, there is the relative
under-funding of tourism compared with our competitors particularly
Scotland and Ireland. My understanding is that the Wales Tourist
Board has a budget of £5.5 million, Scotland has £16
million and Eire has about £21 million. We really cannot
compete in this situation given the importance of tourism and
the potential of tourism to create employment. Is it not time
that something radical is done about it?
(Mr Hain) In terms of funding the figures that you
quote are not in dispute. Tourism is a crucial sector of the
economy of Wales and needs to be funded adequately. That is part
of the consultation that we shall have in September. That will
be picked up by the national assembly after the Welsh Office
ministerial team has settled the budget for next year. Tourism
in Wales could be better funded. Certainly, in the case of West
and Mid-Wales it is absolutely vital to those regional economies.
As to whether it can be made more democratic, if one looks at
the board's composition—we are in the process of reappointments
at the present—there is a fair spread both regionally and
sectorially in tourism. But your comments need to be taken on
board in so far as I am not satisfied that the regional focus
of the board is adequate. There are three regional companies and
the board's relationship with them is mystifying even to the
Minister responsible. I want to see a clearer relationship—I
have asked the board to drive itforward—between the regional
companies and the board and for the board not to fragment its
activity but to establish a strong regional focus that mirrors
the regions of Wales as defined by the WDA, the TECs, the Powerhouse,
the regional committees and the national assembly.
Chairman: Minister, thank you very much for
coming to help the committee. I hope that we shall see you again
in the near future.
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